Groupon ‘victim of its own success’

Groupon, the internet discount vouchers company that issued a retrospective
profit warning last week, has admitted that it did not do enough to prepare
businesses for its service and has pledged to rectify customer service and
marketing issues that have led to it being criticised by UK regulators.

Many of the problems that angered customers were due to Groupon being a victim of its own success.Photo: AP

Joint UK managing directors Roy Blanga and Tobias Tschotsch told The Sunday Telegraph many of the problems that had angered customers and culminated in the company being criticised by the Office of Fair Trading (OFT) were due to Groupon being a victim of its own success.

They admitted the group had failed adequately to prepare businesses making offers to customers through Groupon’s website for the scale of its reach, meaning that some were unable to satisfy demand.

But they are confident that the business, which offers more than 200 categories of products and services in 50 British cities, can recover and broaden the size and scale of its UK operations.

“There have been some deals that haven’t worked the way they should have because the limit put on the deals was too high and the merchants found themselves with too many customers to fulfil,” said Mr Blanga.

“But this is a new industry and it is very difficult for merchants to predict how many customers they can comfortably serve.”

Groupon, founded in the US in November 2008, now operates in 48 countries with 33m active customers.

It launched in the UK in January 2010, allowing British customers to snap up limited-number deals. Mr Blanga and Mr Tschotsch declined to comment on the US profit warning, which said Groupon’s latest results should have included $22.6m (£14m) of quarterly losses in addition to the $42.7m losses it announced in February.

The announcement shocked the Nasdaq market, where Groupon floated last year after earlier turning down a $6bn offer from Google.

Last month, the OFT censured Groupon and gave it three months to improve its business practices after discovering “widespread examples” of the company breaching consumer protection regulations.

The Advertising Standards Authority also referred Groupon to the OFT after finding that the company had breached advertising codes more than 50 times in a year.

Rachel Brown, who runs the Need a Cake bakery in Reading, Berkshire, has said the 75pc discount she offered Groupon subscribers last spring on 12 cupcakes that usually cost £26 was “without doubt the worst ever business decision I have made”.

She only expected a few hundred orders but under-estimated the deal’s popularity and, besieged by 8,500 people who signed up for the £6.50 bargain, ended up losing between £2.50 and £3 on each batch she sold.

“We fully appreciate the OFT’s input,” says Mr Blanga. “We take what it said and the results of its investigation very seriously.

“We have to ensure that what the customer buys on the website and what they expect from that deal are what’s being delivered and hopefully over-delivered.”

Mr Tschotsch said Groupon now does much more to prepare merchants making offers through the company, in addition to carrying out credit and director checks.